Profitable E-commerce Pricing Strategies for Your Online Store
Selling a product or service in today’s digital era isn’t easy. Consumers have become smarter than ever. Everyone who wishes to purchase something performs thorough research on the value and quality of the product. And that means it certainly becomes difficult for the sellers to determine appropriate product price that attracts the customers as well as generates profits. Well, even though it can be difficult to work on an E-commerce pricing strategy, but it is never impossible. In fact, there are few ways to determine the reliable pricing strategy that suits your business effectively.
In this article, we will delve deeper into understanding the top pricing strategies. But before that, let’s brush our knowledge on –
What is an ecommerce pricing strategy?
E-commerce pricing strategy is a method used by the sellers to establish the best price for the services or products. By employing a proper strategy, the seller gets to maximize the profits and shareholder value while still taking care of the market and consumer demand.
There are various types of pricing strategies that the sellers can use based on the product competition, product demand and products sold. And regardless of what industry you belong to, it is wise to employ a strategy that scales the business and doesn’t harm the profits in the long run.
Types of pricing strategies for your online business
Competition-Based pricing strategy:
Competition based pricing is a strategy that focuses on the current market for the company’s service or product. Instead of considering the cost of their own product, the competitor’s price is used as the benchmark for the product and services.
By employing this strategy, the company usually sets the value of the product slightly more or less than that of the competitor. Sometimes, the company can set the price the same as the competitor too.
For instance, Pepsi and Coca Cola sell an almost similar type of drink. But, Pepsi typically charges a few bucks lesser than Coca Cola.
Penetration pricing strategy:
By using a penetration pricing strategy, the company enters the market with extremely low price to draw the attention of the customers away from the competitors who sell similar products and services at a higher price.
However, this type of strategy is applicable only for a short-term period by the brand new businesses or existing business that wants to break into the competitive market. This strategy can cause temporary disruption and loss. As a seller, you can only hope for the initial customers to stick around even when the prices are raised.
Value-Based pricing strategy:
Value-based pricing strategy is set based on what the customer is willing to pay for the service and products. Even though the business can raise the charges, they usually stick the prices as per the customer’s interest and data. If employed strategically, value-based pricing can boost customer loyalty and sentiment, resulting in better customer relationship down the line. Plus, if your customers are willing to pay extra to receive the best quality, then you can introduce a new line of product and services at a higher price.
However, in order to employ proper value-based pricing, you will need to be in tune with your multiple customer profiles and personas constantly.
Dynamic pricing strategy:
Dynamic pricing is also referred to as demand-based pricing or time-based pricing. This is a flexible pricing strategy in which the cost fluctuates based on customer and market demands. The set algorithm of dynamic strategy considers competitor pricing, demand, and other factors.
Classic Dynamic pricing examples can be seen at Hotels, Event Venues, Utility companies and Airlines. For instance, if you book an Airline ticket six months before your set date, you may end up paying a reasonable value. The same ticket will be sold twice or thrice times costlier six days before and even more just a day before.
Skimming pricing strategy:
Price skimming is a method where the sellers release a product at the highest possible price and then lower the price as the time goes on, and the product becomes less and less popular. With Market skimming pricing, the seller gets the opportunity to recover sunk costs and sell services or products beyond the novelty. But again, this type of strategy can result in annoyed customers who end up spending higher price in initial days.
Prime examples of this strategy are technology products like gaming console, television sets,smartphones etc., that attract the early adopters and seasonal products like holiday décor.
Premium pricing strategy:
Premium pricing strategy is used to price luxury or high-quality services and products. With this type of strategy, you can tell your customers that your product signifies status and better value.
The premium pricing strategy can prove profitable as you end up targeting individuals who can afford your products and services. And since you have a limited target, you lower ad costs by avoiding the general market.
This type of pricing strategy is best for fully-established companies because the products and services will only be utilized by famous people or celebrities.
Cost-based pricing strategy:
The intention behind employing cost-based pricing is to make a specific percentage more than the total production, manufacturing and distribution cost. Typically, the final price of the product is determined by adding a per cent of the total manufacturing cost. And that means your products and services may have a slightly different value than the market rate.
If the strategy is implemented correctly, the company can gain both the customer’s trust and predictable profits.
Over to you
There are a lot of things, starting from production cost to customer demand, competitors, profit margins and much more that goes into pricing. But don’t let the whole process drain you because pricing strategy ecommerce or pricing model will change based on the shifts in products and market positioning. So, employ psychological tactics to convince your consumers and tackle your competitors too. Wersel’s competition and price analytics solution can prove to be a worthy strategic companion to know about how the product is performing across multiple eCommerce sites. You get in-depth insight on Minimum Advertised Price (MAP) agreements, the available stock counts of a product, or the different Sellers for a particular product. Call us at Wersel for a quick demo.